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Misunderstanding trade

How international trade works has always been a difficult sell for promoters of economics. Explaining Comparative Advantage is easy if you are holding a lecture, but less easy if you have only a sentence or two. I am reminded of the catchphrase of my economics teacher who would say: “Not everything in economics is intuitively obvious.”

This is unfortunate. Mercantilism – and the neo-mercantilism put forward today by many NGOs – is deeply damaging, especially to the world’s poorest who are “protected” by high import tariffs.

The current buzz-word in trade policy is “offshoring”. Many people in Britain and America think it bad for their country. Yet offshoring jobs is nothing new. It is merely the specific jobs that are moving abroad is different. In the past, the jobs moving abroad were always changing. There is nothing new now. And each time people campaigned against losing jobs to overseas countries, Britain and America kept on increasing the total number of jobs in their economies. Opponents of offshoring do not have the evidence of history on their side.

  • Further reading: Offshoring service jobs is advantageous
  • 11 comments to Misunderstanding trade

    • Mandrake Ethos

      Fortunately, and much to my surprise, the presentation of the “out-sourcing debate” in the US media has been strangely balanced (at least below the eyebrow-raising headlines). Even National Public Radio–not known as a stalwart in the cause of economic liberty–presented comments from business owners that have benefited from out-sourcing and, perhaps more importantly, workers and managers in the US that are themselves employed because of “in-sourcing” (ie. they work for a foreign company here in the US and return their product/service to that country).

      I also believe the “alarming” numbers first presented when this issue came to light have had time to sink in and meliorate in the often caustic tonic of fact. “Wait… how many jobs going overseas? Over how many years? And you say there are how many tens of millions of workers in the US? Why should I be upset about this again?”


    • Dave Potts

      Unfortunately, here in the States, we also have knee-jerks like CNN’s financial anchor Lou Dobbs instilling fear into the hearts and minds of the economically illiterate. So it goes.

    • Tim Worstall

      Comparative advantage explained in one sentence :
      ” We all do what we’re least bad at and swap the results “.

    • ed


      Ok then I’ve got a few questions for you.

      1. China is adding 10+ million new jobs each and every year. What is the source for those jobs?

      2. The US economy is growing at a very good 4.1%-4.5% GDP per quarter. Yet the number of jobs added, as an example, in Fed 2004 was a ridiculously low 21,000. Of which all were government hires with no private hiring recorded by the BLS. Where are the 350,000 jobs per month that economists have been predicting? Why are economist supposedly “puzzled” by the lack of job creation? Don’t they know the answer? If they don’t know the answer, should anything they write have any validity?

      3. The assumption is that only a few professions are being offshored. Yet the mechanics of offshoring can apply to many others. Explain why an international corporation, or a smaller company looking to save money, wouldn’t offshore their office workers? Wouldn’t offshoring of clerical staff result in significant cost savings?

      4. Explain why any company wouldn’t offshore any job that doesn’t require a physical presence. And for those that do require a physical presence, why wouldn’t they simply relocate the facilities involved?

      5. Jobs once offshored to India are now being offshored *from* India to the Phillipines. This process can, and very likely will repeat itself, is there any reason at all for offshored jobs to return to the domestic labor market? Wouldn’t they continue shifting to the lowest cost market available?

      6. With manufacturing increasingly offshored along with IT, high tech and with bio-tech starting to be offshored. What professions will be left that would be most likely to be unaffected by offshoring?

      7. If you can’t answer these questions, then why should anyone take anything you write on this subject with any kind of seriousness?

      I await your answers with breathless anticipation. *shrug* well maybe not, but I’ll check back in a few days.

    • ed

      Umm. *hello*. Anyone there?


      I guess you all got outsourced.


    • ed

      *turns out light*

    • Well ed, I think what has happened here is that your questions were answered several articles ago and not many folks have the stamina to rephrase them.

      That the state is ‘creating jobs’ is of course very interesting. In fact the jobs being created are at the expense of productive jobs which create rather that destroy wealth because they are funded by money acquired by force, not economic exchange… which of course mean less real jobs overall.

    • ed


      1. “Well ed, I think what has happened here is that your questions were answered several articles ago and not many folks have the stamina to rephrase them.”

      Frankly I didn’t think there was any real answering going on at all. I got some theories spouted, but little else.

      2. “That the state is ‘creating jobs’ is of course very interesting. ”

      *shrug* It’s universally recognized that the best place for long-term employment now is the federal civil service. You get pay raises every year, regardless of economic conditions, your job can’t be offshored and you’re allowed to double and triple dip*.

      (* double-dipping and triple-dipping are terms to describe a very common practice. If you retire from military service with twenty years, you’re eligible for retirement benefits. If you then enter the federal civil service you start off with twenty years seniority, from the military service, and then twenty years later you get to retire yet again. The retirement benefits are cumulative. If you then enter federal civil service again you start off with forty years seniority and then can retire yet again.

      Or you can intermix it with municipal and state government jobs. The seniority doesn’t accrue then but you’re still allowed to retire from those jobs, accruing retirement benefits, and then get another job.

      Funny thing really.

    • sark

      Ed, everything is theories. Theories is how we understand quite literally everything. If you don’t understand that, try reading one of the books shown on top of this blog (by Popper).

      But as you say, it’s universally recognized that the best place for long-term employment now is the federal civil service. And there is the problem. This sucking effect caused by tax funded takenings consuming more and more of the economy is one of the prime drivers of things like outsourcing and just plain old reluctance to add to the payroll outgoings at all. Why employ someone if the state is just going to add costs, directly and indirectly, to every person you hire, plus make it a real bitch to fire them if they turn out to be a jerk? Payroll taxes are a tax on jobs and make guys in india all the more attractive. And it is from taxes that government jobs take their money, not from actually growing the economy. There sure is a problem but not where you think it is.

    • Herb Wexler

      I’m looking for statistics that compare the average wages in different countries and the productivity of the workers. With all the discussions of outsourcing and comparative advantage I’d like to actually have some facts. Can anyone point me to a web site that has this type of info?